Regime-Switching Effects of Tourism on regional Growth of Touristy Provinces: Applied of smooth transition autoregressive model

Subject Areas : Regional Planning

Javad Barati ¹ (Assistant Professor, Department of Tourism Economics; Research Institute for Tourism; Iranian Academic Center for Education, Culture and Research (ACECR); Mashhad; Islamic Republic of Iran)
esmat mojarad ² (Ph.D. of Agricultural Economics, University of Zabol, Iran.)

Received: 2019-05-17 Accepted : 2020-03-06 Published : 2021-07-23

Keywords: Economic Growth, Keywords: tourism, nonlinear smooth transition model, Touristy Provinces,

Abstract :

 
Abstract
           The High influenc of foreign exchange fluctuations on the tourism sector and different levels of tourism development in provinces of Iran makes distinct the impacts of tourism on the economic growth of the provinces Towards each other. Studying this issue in terms of determining the effects of tourism Regime-Switching on the economic growth of provinces will improve the perspective of regional planners. Therefore, this study investigates the hypothesis of economic growth based on tourism and Regime-Switching Effects of tourism on regional growth of four of greatest tourist-friendly provinces (Isfahan, Khorasan Razavi, Fars and Gilan). In order to, by applying nonlinear techniques, it was reviewed that whether tourism activity leads – in the long run – to economic growth, or, economic growth leads to tourism growth. For this purpose, the validity of the hypothesis of nonlinear relationship between tourism and economic growth using smooth transition autoregressive model (STAR) was investigated. Also, Granger causality has been used to investigate the research hypothesis in period 2008-2017. The results have confirmed the non-linear effects between tourism and economic growth, so that inter-provincial results showing distinct behavior and different effects.  The results showed that tourism has no effect on value of regional product for provinces of Isfahan and Fars. Moreover, the linearity of this relation is rejected for provinces of Khorasan Razavi and Gilan; and tourism has a great effect on value of gross domestic product these provinces. The nonlinearity Granger causality tests confirm in all cases the causality from value of gross domestic product to tourism. Therefore, value of gross domestic product has considerable effect on tourism in all provinces of Isfahan, Khorasan Razavi, Fars and Gilan. So, it can be advised that it was tried by improving economic growth for tourism development. Also, economic decision-makers in a dynamic non-linear relationship between tourism and economic growth to the threshold level of the potential benefits of tourism should be considered in future planning.
 
Keywords: tourism, economic growth, nonlinear smooth transition model, Touristy Provinces.
 



 


 
 



 
 
 
Extended Abstract
Introduction:
         One of the important factors in achieving sustainable economic growth and development is the attention to the tourism sector, which is the most important policy goal in attracting domestic and foreign tourists. Considering the importance of the Iran economy's dependence on foreign exchange earnings from crude oil and its products, the role of tourism development in reducing this dependency and its position in the country's economic development plans is very important. Therefore, examining the impact of tourism on economic growth, especially in the regional economies, is important for different countries. In this regard, due to the wide impact of currency fluctuations on tourism sector and different levels of tourism development in different provinces of Iran, it makes distinct the effects of tourism on provincial economic growth. Studying this issue in terms of determining the effects of tourism Regime-Switching on the economic growth of provinces will improve the perspective of regional planners. Therefore, this study investigates the hypothesis of economic growth based on tourism and Regime-Switching Effects of tourism on regional growth of four of greatest tourist-friendly provinces (Isfahan, Khorasan Razavi, Fars and Gilan).
Methodology:
       In this study, the purpose of tourism Regime-Switching is changes from linear to nonlinear, and the effects of this changes will be analyzed. For this purpose, the validity of the hypothesis of nonlinear relationship between tourism and economic growth using smooth transition autoregressive model (STAR) was investigated. To identify the nonlinear model, we use a framework developed by Terasvirta (1994). Also, Granger causality has been used to investigate the research hypothesis in period 2008-2017. One of the simple and reliable methods for finding the roots of nonlinear equations is the Grid Search method, which we do here is similar to the study of Awokuse & Christopoulos (2009). The Data required in this study includes the GDP per million rial for the target provinces (Isfahan, Khorasan Razavi, Fars and Gilan) and the number of tourism trips in these provinces, which were obtained from the Iranian Statistical Center.
Findings:
          Linear causality "from tourism to production" and "from production to tourism" were studied separately. The results show that the linear relationship "from tourism to production" is rejected for all four targeted provinces. Regarding the linear relation "from production to tourism", the results show that this relationship is not rejected for Khorasan Razavi and Isfahan provinces but for Fars and Guilan provinces the linear relation "from production to tourism" is rejected. Overall, it can be said that the results of the study confirm the nonlinear effects of tourism and economic growth, so that inter-provincial results showing distinct behavior and different effects. The results of survey linear relation and nonlinear relation showed that tourism has no effect on value of regional product for provinces of Isfahan and Fars. Moreover, the linearity of this relation is rejected for provinces of Khorasan Razavi and Gilan; and tourism has a great effect on value of gross domestic product these provinces. The nonlinearity Granger causality tests confirm in all cases the causality from value of gross domestic product to tourism. Therefore, value of gross domestic product has considerable effect on tourism in all provinces of Isfahan, Khorasan Razavi, Fars and Gilan
Conclusion:
          Based on the results of the research, it can be analyzed that:

The absence of a linear relationship from tourism to regional GDP in the provinces that are the greatest tourist-friendly provinces in the Iran can be due to two factors: First, the form of the relationship may not be correct and the linear relationship must be changed to a nonlinear relationship. Second, in provinces where are not the final destination for travel and the overnight stays is low (generally, central provinces or border small provinces), tourism is not a significant factor in regional development (increasing regional GDP).
Khorasan Razavi and Isfahan provinces are highest ranking of provinces with foreign tourist attraction, respectively, due to the fluctuations in foreign tourist arrivals during the years studied (mainly due to political events), in fact linear models cannot represent tourism behavior in these provinces.
 Khorasan Razavi province have higher length of stay than other provinces and on the other hand, due to the geographical extent of this province and the higher person-overnight stays than other provinces, tourism density is higher. It also has the highest tourism infrastructure in the entire Iran provinces, which can be attributed to the linear link between production and tourism. The same argument, albeit less strongly, is also applicable to the Isfahan province to confirm the linear link from production to tourism.
By changing the linear situation to the nonlinear situation, there is a causal relationship between tourism and economic growth in Khorasan Razavi and Gilan provinces. In contrast, for the other two provinces this situation is not due to the high share of tourism in the two provinces and the high persistence of tourism in these provinces. The higher length of stay of these two provinces is important because the peak periods of tourism in these provinces are not limited to a specific season or a few specific days of the year and tourism has a wider distribution throughout the year.
In sum, it is worth noting that economic decision-makers in a dynamic non-linear relationship between tourism and economic growth to the threshold level of the potential benefits of tourism should be considered in future planning.

References:

1. Barati, J. (2019A). Investigating the Regional Convergence of Tourism and the Role of Tourism Infrastructure in Iranian Provinces,  Journal of Regional Planning, 35(9), 1-12. (in persian)


2. Barati, J. (2019B). Infrastructure Factors and their impact measuring on Growth on Tourism Economy in Iranian Provinces, accepted in The Journal of Economic Modeling Research (accepted articles). (in persian)


3. Barati, J. (2017).The relationship between industrial investment and regional inequality in Iran. PhD Thesis in Faculty of Economics and Administrative Sciences, University of Mazandaran: Mazandaran. (in persian)


4. Hasanvand S.,Khodapanah M. (2014). The Impact of Tourism on Economic Growth in Developing Countries: Two Approaches Static Panel Data and Dynamic Panel Data. Quarterly Journal of the Macro and Strategic Policies, 2(2): 87-102. (in persian)


5. Jafari Samimi, A. & Khebreh, S. (2015). The Effect of Religious Tourism on Economic Growth in Iran's Provinces. Quarterly Journal of Tourism Space, 15(4): 85-103. (in persian)


6. Ministry of Cultural Heritage, Tourism and Handicrafts (2018). Statistical Yearbook of  Culture and Tourism, All the years. Office of Planning and Budgeting. (in persian)


7. Mirzaie H. &,Jalili S. (2011). Impact of Tourism Development on Economic Growth (Compared To Iran And Selected Countries).  journal of Financial Economics (Financial Economics and Development); 15(5): 73-91. (in persian)


8. Mohammadi, M. & Daripour, N. (2016). The Feasibility of Regional Development on Tourism Industry by Using Mixed Model of FAHP- GIS. Journal of Zonal Planing; 21(6): 31-44. (in persian)


9. Statistical Centre of Iran (2018). Iranian Survey Results of National Tourists. All the years. Plan and Budget Organization of the Islamic Republic of Iran (PBO). (in persian)


10. Tayebi, S. K.; Babaki, R. & Jabbari, A. (2007). An Investigation of the Relationship between Tourism Development and Economic Growth (1959-2004). Journal of Humanities and Social Sciences. “Letter of Economics”; 26(7): 83-110. (in persian)


11. Yavari, K.; Rezagholizadeh, M.; Aghaei, M. & Mostafavi, S. M. H. (2010).The Effect of Tourism on Economic Growth: The Case of OIC Member Countries. Journal of Economic Research (Tahghighat-E-Eghtesadi), 45(2): 221-243. (in persian)


12. Awokuse, T. O. & Christopoulos, D. K. (2009): Nonlinear Dynamics and the Exports – output growth nexus. Economic Modeling, 26: 184–190.


13. Brida, J. G., Lanzilotta, B., Pereyra, J. S., Pizzolon. F. (2013): A Nonlinear Approach to the Tourism–Led Growth Hypothesis: The case of the MERCOSUR. Tourism, 18(7): 1-20.


14. Buthaina, M. A. & Hussam-Eldin, D. (2017): Tourism and Economic Growth in Jordan: Evidence from Linear and Nonlinear Frameworks. International Journal of Economics and Financial Issues, 7(1), 214-223.


15. Candela, G., & Figini, P. (2012): The Economics Of Tourism Destinations. Berlin and Heidelberg: Springer.


16. Caner, M., Hansen, B.E., (2001): Threshold Autoregression with a Unit Root. Econometrica 69, 1565–1596.


17. Chiang, Geng-Nan; Sung, Wei-Ying & Lei, Wen-Guu (2017): Regime-Switching Effect of Tourism Specialization on Economic Growth in Asia Pacific Countries. Economies, 23(5), 1-14.


18. Granger, C.W.J. & Terasvirta, T. (1993): Modeling Non-Linear Economic Relationships. Oxford University Press, Oxford.


19. Isik, C. & Dogru, T. (2018): A Nexus of Linear and Nonlinear Relationships between Tourism Demand, Renewable Energy Consumption, and Economic Growth: Theory and Evidence. International Journal of Tourism Research. 20)1(,38-49.


20. Labanauskaitė, D. & Baranskaitė, E. (2019): The Evaluation of Tourism Development Economic Impact Indicators in Lithuania. The European Proceedings of Social & Behavioural Sciences, 62: 728-736.


21. Nissan, E., Galindo, M. A. & Mendez, M. T. (2011): Relationship between Tourism and Economic Growth. The Service Industries Journal, 31(10): 1567-1572.


22. Ribeiro, E. C. & Wang, B. (2020): Tourism Led Growth Hypothesis: Has the Tourism industry an impact on The Economic Growth of Sao Tome and Principe?. International Journal of Economics and Financial Issues, 10(1), 180-185.


23. Suhel, S. & Bashir, A. (2018): The Role of Tourism Toward Economic Growth in the Local Economy. Economic Journal of Emerging Markets, 10(1), 32-39.


24. Terasvirta, T. (1994): Specification, Estimation and Evaluation of Smooth Transition Autoregressive Models. Journal of the American Statistical Association 89, 208–218.


25. Terasvirta, T. (1998): Modeling Economic Relationships with Smooth Transition Regressions. In: Ullah, A., David, E. (Eds.), Handbook of Applied Economic Statistics.Marcel Dekker, NY, 507–552.


26. Usman, M.U.; Tuba, S. & Güven, S. (2019): Forecasting Performance of Smooth Transition Autoregressive (STAR) Model on Travel and Leisure Stock Index. The Journal of Finance and Data Science, 5(1), 12-21.


27. Wan Chen, B., Bwo Nung, H. (2008): Tourism Development and Economic Growth – a Nonlinear Approach. Physica A: Statistical Mechanics and its Applications. Elsevier, 387(22): 5535-5542.